DefinePK

Abstract

<jats:p>: The purpose of this study is to investigate the impact of the institutional environment on
the capital ratios of banks operating in the South Asian Association for Regional Cooperation
(SAARC) area. We apply the Hausman-Taylor methodology to unbalanced panel data of 145 banks
(109 conventional and 36 Islamic banks) for the period 2010 to 2019. The findings demonstrate that
banks with greater creditors’ rights have a low regulatory capital ratio. Similarly, banks are reluctant
to hold a high regulatory capital ratio as a result of greater corruption perception. However, countries
with more financial openness hold higher regulatory capital ratios to present greater financial
strength. We also provide evidence that the impact of creditors’ rights is more distinct in conventional
banks than in Islamic banks. Finally, we demonstrate that with more financial openness, small banks
hold a higher regulatory capital ratio than large banks.</jats:p>